The most underrated savings strategy and how to do it
Are you looking for new ways to save money? I mean, who isn't these days? We've all heard the advice to 'spend less, save more', and while there's a lot of truth in those words, knowing how to tap into that savings potential can be difficult.
It's just like we all know that adage 'eat less, exercise more' we're clever people, we get it, it's logical and sound. However, all these things are easier said than done. This is true because if it was as easy as understanding that to stay fit and healthy, we have to eat less and exercise more, then we'd all be ultra-marathon runners, a size eight living to be over one hundred years old. But as we all know, that's not the case. Well, if you are one hundred and one year old, size eight ultra-marathon runner, reading this, I take my hat off to you. You are a better person than I am.
Money is the same, spending less and saving more seems like a no-brainer, but just like staying healthy, there's a little more to it than that.
So if you fall into the normal category of life and need a few more signposts, then read on.
The most underrated savings strategy
If I had to pick one piece of advice which is most underrated, I would say tracking your cash flow. To be clear, when I say that, I am talking about tracking your income, expenses and savings.
So many of us are off looking for new, unique, smart, and interesting advice on saving money, but the fact remains that the first rule IS to save more money. The thing is, this is often the most neglected, passed over because it is too mundane and not edgy enough in some circles.
Here's the key...
The deeper you track your expenses, the more you save automatically to greater the success you'll have. The expense numbers start to play on your mind, the comparisons with previous months happen subconsciously, and even without your knowledge, you will see your savings improving each month.
This may sound like a simple act, but it has enormous power.
And here's how to do it.
Step 1: Understand Your Cash Flow
The first step in tracking your cash flow is understanding precisely what it means. In short, cash flow tracking involves watching the money that comes into and out of your pocket over time. This includes understanding your income, ALL sources of income, exactly how much it is and where it comes from. This includes all salaries, bonuses, investment dividends etc.
Next is to know your expenses. Expenses are all the things that take from your income, from fixed ones you can't avoid to discretionary ones which have a bit of flexibility. This includes things like bills, groceries, and entertainment. The key is to know where all your money is going. By understanding exactly where your money goes every month, you will be able to make better decisions about how to use it more efficiently.
Step 2: Create a cashflow (otherwise known as a budget, take your pick)
Once you understand your income and expenses, the next step is creating a cashflow. This will help you stay on track and ensure you don't overspend each month. To create a cashflow, consistently record all your sources of income and necessary expenses, as mentioned previously - rent/mortgage payments, utility bills, etc.
Then add up all of the income numbers and subtract them from the expense numbers; this difference should give you an idea of how much extra money you have left over after taking care of these costs.
From there, you can decide what to do with this extra money – this is the GAP, and the GAP is where the magic happens. Your freedom and future security lie in the wiggle room between your income and expenses. So choose wisely what you do with it.
Step 3: Tracking Your Progress
Next, you monitor your progress over time. As time goes by, check in with yourself regularly to see if anything has changed in income or expenses – are there any new sources of revenue? Are there any recurring costs that need to be taken into account?
Once you have established a baseline for yourself based on current conditions, it is time to widen the GAP between your income and expenses.
Step 4: Aim for the low-hanging fruit.
Look through your outgoings and see what you could cut out without losing out on your quality of life. Are there subscriptions that you forgot you had or no longer use? Are there impulse buys sitting in your wardrobe still with tags on? How is your food waste looking, are you fed up paying the bin men to take your composting away, all that once edible food set for destruction?
Find the things that don't matter and cut them out.
Step 5: Get channelling
With each saving made, channel that money towards the GAP. Make the gap as wide as possible. The more money you send towards the GAP, the more money you can save to build the life you really want.
The most underrated savings strategy is to go deep in your cashflow. Tracking money may seem humdrum and boring, but let yourself get fired up about it. Not because it's the thing to do but because, with time and patience, it can give you want in life.
Creating a cashflow finds the money you need to save, but it's often overlooked and even more often underestimated. By understanding where your income comes from and where it's going each month — through creating a cashflow—you'll be able to make smarter financial decisions that get your savings rate higher than you ever dreamed.
I'll be sharing more money-saving tips and money mindset tips with you soon, so stay tuned! In the meantime, make sure you are subscribed to the Smart Money Times Newsletter and get your hands on my new ebook From Out of Control to Cruise Control, 20 Simple Things to Completely Transform Your Money Life.
Disclaimer: This is information – not financial advice or recommendation The content and materials featured or linked to on mrssmartmoney.com are for your information and education only and are not attended to address your particular personal requirements.